Profits drop at RBS after leaders warn of Brexit struggles

Earnings slip in Q1 as economic woes curb investment and business borrowing

Royal Bank of Scotland has reported a fall in first-quarter earnings as economic uncertainty and increased competition took their toll on the lender’s performance.

The bank, which announced the resignation of chief executive Ross Mcewan on Thursday, saw bottom line profits drop 12.5 per cent to £707 million in the three months to 31 March.

Pre-tax operating profits slipped from £1.2 billion to £1bn as RBS, which is still 62.4 per cent taxpayer-owned, was hit by a competitive mortgage market and continuing uncertainty among businesses.

Natwest Markets, the lender’s investment banking arm, also struggled, with income down 41.4 per cent compared with the previous year.

Nevertheless, group profits came in ahead of consensus estimates.

The update comes a day after chairman Sir Howard Davies warned shareholders at the bank’s annual general meeting of a Brexit-related hit to income, as political concerns weigh on the wider economy and hamper investment.

Outgoing boss Mcewan said: “This is a solid set of results set against a highly uncertain and competitive backdrop.

“We continue to support our customers through this Brexit uncertainty while investing and innovating in digital services to meet rapidly changing customer needs.”

The group cautioned that while it is retaining its fullyear guidance, the “ongoing impact of Brexit uncertainty on the economy, and associated delay in business borrowing decisions, is likely to make income growth more challenging in the near term”.

The results also showed that RBS shed £45m in costs over the three-month spell and is on track to take £300m out of the group by the end of the financial year.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, called the results “disappointing”, adding: “There’s a degree of déjà vu – a lot of the key themes could have been lifted straight out of Barclays’s results on Thursday.

“The investment bank has seen income slip as client activity falls, while competition in the UK mortgage market is hitting margins on the high street. However, RBS added a few more clouds to the general gloom.”

AJ Bell investment director Russ Mould said RBS’ exposure to business banking is having an outsized impact, with firms less likely to commit to loans until there is greater clarity regarding Brexit.

He said: “Today’s update is a reminder of what a tough job Mcewan’s successor will be walking into despite the progress made in his five-anda-half-year tenure.”

Mcewan, who has a year’s notice period, will stay in the post until a successor has been appointed to ensure an “orderly handover”.

Davies said the search for the next CEO will start immediately, with Alison Rose, who was last year promoted to deputy chief executive of Natwest Holdings, in the frame as the leading internal candidate.

hannah.burley@jpimedia.co.uk